Who Owns Your Startup?

When your startup finally makes it big, who will own it? And when it comes to it, will you as the CEO acknowledge your loyal troops who’ve turned a one-man Startup into a successful company?

Founders generally give their partners equity, but not the employees who took a leap of faith with them in the business. The employees who did most of the work that lead to the eventual growth of the company. Most great (Apple/Google etc.) recognize this and hence go out of their way not only to motivate their employees but to give them equity, so that they have a sense of ownership and to stick to the company even when the startup is going through the dreaded valley of death.

Google made billionaires. Google made millionaires. Google made many people very wealthy. The same can be said of Facebook, Apple and Microsoft. These companies have all made a good number of their employees very wealthy when they went public. Why don’t we have similar success stories in Kenya? We typically have one ‘innovator or visionary’. None of them acknowledge the team on whose shoulders they stand when they are getting the glory.

Retaining Great Employees

Most of my professional life has been spent working for or in startups and one of the common themes that has resonated in all of them is employee/talent retention. Startups are oft faced with a challenge as they expand (especially if they are bootstrapping). Granted that this is generally a management issue (regardless of the company or organization you are running (the army, government, intelligence services etc. all struggle with this), but typically, the problem is compounded in startups. How so?

You need multi-talented employees.

Before you get funding/constant flow of business, you generally lack structure within your organization. Skills are split by need, not by preference. There is no bureaucratic structure to ensure that i’s are dotted and t’s crossed. All employees have to be versatile and hardworking. If you are running a software development outfit, the developer who is often phone shy has to answer the phone when it rings, as there is no one else to do so. Employees have to figure out the basics of accounting/customer relations/product development. No one is in a silo. Problem solving skills are often sharpened at this stage of a business. This has it’s benefits for the employees who work in this outfit as it is a sandbox for larger corporations, but it does pose a real challenge – people notice such great employees and are willing to hire them and pay them what they are worth.

Payroll

To compound matters, in startups, generally, payroll is an issue. Employees have to deal with the lack of trust from banks (they can’t get loans as they don’t have a reputable employer), delayed salaries (cash flow issues) and poor pay. If you really think about it this should never be the case primarily because the employee is not the business owner, they did not take a risk, but often be it out of choice or lack of it thereof, they stick through it, believing in a dream or simply for the mortgage.

Stock options

Which brings me to the above point. There are two ‘general’ ways one can get equity in a firm, either through capital injection or sweat; the former is the ‘accepted’ way in Kenya, the latter, not really.

Founders generally give their partners equity, but not the employees who took a leap of faith with them in the business. The employees who did most of the work that lead to the eventual growth of the company. Most great (Apple/Google etc.) recognize this and hence go out of their way not only to motivate their employees but to give them equity, so that they have a sense of ownership and to stick to the company even when the startup is going through the dreaded valley of death.

I have seen one too many startups collapse after a larger corporation simply hires all the struggling employees who for a very long time were struggling to make ends meet, working long hours and sacrificing for a startup that did not appreciate the efforts that they made.

“Charisma”

Many times, charismatic CEO’s are able to urge their employees to stick around for a longer period, but this is only a tourniquet, doesn’t work in the long term.

What is needed in Kenya is an increase of employee stock options. This will allow the employees to:

Have a feeling of ownership – Employees will now go the extra mile, do more than they are already doing to ensure the company survives. Delayed salaries/reduced salaries for employees with stock options won’t be as painful as the same for employees without any options.

Generate Capital – Interestingly enough, some frugal employees may be able to inject capital into the startup should it be necessary.

Increases wealth/goodwill for the company.

A major employee ownership success story globally is Huawei, which is employee owned – which this week, officially overtook Ericson to become the largest communication equipment manufacturer in the world.

This is by no means a silver bullet to the problems that ail startups but it is one of the many options I believe should be explored in a deeper manner. It has it’s drawbacks (some employees may be toxic and it will be tricky to get rid of them, at times, share options make people lazy – they suddenly are guaranteed a small fortune and choose to reduce their work output significantly, all this notwithstanding though, I sincerely believe that the good outweighs the bad in this particular undertaking.